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The billionaire extends his long courtship of Chrysler with a $4.5 billion cash bid for the troubled company
By The Associated Press, with BW Staff
Talk about a tumultuous relationship.
Billionaire Kirk Kerkorian is back in his quest for Chrysler, less than a decade after Daimler-Benz acquired the company and saw it deteriorate into a disastrous investment. Kerkorian's Tracinda Corp. on Apr. 5 offered $4.5 billion cash for the troubled automaker, which parent DaimlerChrysler (DCX) is likely to divest.
The bid marks the latest chapter in a long fascination Kerkorian has had with Detroit in general and with Chrysler specifically. Tracinda was Chrysler's largest shareholder at the time of its 1998 merger with Daimler-Benz, and Kerkorian sued the combined company two years later. He claimed that Daimler-Benz engineered a takeover of Chrysler, then cheated him out of billions by casting the deal as a "merger of equals." A federal judge rejected his claim.
Though it's an intriguing play that garnered initial union support, analysts say such a deal would be difficult for Kerkorian to pull off because of his turbulent history with Chrysler and the size of the company's huge legacy costs.
"I'm not sure what Kirk brings to the party except he can't help himself when it comes to playing with Chrysler," says David Healy, an analyst with Burnham Securities.
(Click here to watch a video of BusinessWeek's Detroit Bureau Chief, David Welch, and Senior Correspondent David Kiley discussing the billionaire investor's fascination with the automaker. They also suggest other possible suitors and speculate on whether Chrysler's Jeep division could be sold off separately.)
Long an active investor in automakers, the 89-year-old former movie mogul offered $22.8 billion for Chrysler in an unsuccessful 1995 takeover bid. Kerkorian's new bid, about a fifth of what he offered in 1995, reflects the falling fortunes of Chrysler Group, which lost $1.5 billion last year and has announced 13,000 job cuts in North America and reduced production.
The offer disclosed Thursday from Tracinda is slightly lower than at least one competing bid from Canadian auto-parts supplier Magna International (MGA), worth a reported $4.7 billion.
Tracinda said it would place a $100 million deposit for the right to exclusive bargaining rights. Tracinda in a statement said it wants "to build and strengthen" the troubled automaker and "will offer the UAW and Chrysler management the opportunity to participate as equity partners in the transaction."
DaimlerChrysler shares climbed nearly 5% to close at $84.80 on the New York Stock Exchange after rising to a new 52-week high of $84.90 earlier in the session.
Union Support Needed
California-based Tracinda said its offer is subject to Chrysler reaching a new collective bargaining agreement with the United Auto Workers as well as a deal with DaimlerChrysler on sharing the estimated $22 billion in unfunded pension liabilities and health-care costs of Chrysler retirees.
Russell Phillips, union steward for UAW Local 1700, says word of Kerkorian's interest began filtering quickly through the Sterling Heights (Mich.) assembly plant. Phillips, a 20-year Chrysler employee, thinks the UAW would be interested in listening to such an offer from Tracinda. "It would be very interesting if we can get something like that so we can help our members," Phillips says. "A lot will depend on how open they are going to be with the UAW and if they really are willing to sit down and talk with us."
But David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said any deal would require an arrangement with labor on the legacy costs and noted that Tracinda adviser Jerome York has a long history of working with the UAW.
Tracinda said it's ready to start a more extensive review of Chrysler's financial books right away and believes it could complete it within 60 days.
Han Tjan, head of corporate communications for DaimlerChrysler in New York, said the German-American automaker is talking with partners about a sale and that the chairman is satisfied with the process.
At least two groups in addition to Tracinda and Magna reportedly have expressed interest in Chrysler, which is based in Auburn Hills, Mich. Cerberus Capital Management and a consortium of investors led by Blackstone Group each have reviewed Chrysler's finances and are expected to make bids. "As a matter of policy, we can offer no confirmation on any bid submission by Cerberus," said Cerberus spokeswoman J.J. Rissi. John Ford, a spokesman for Blackstone, said he could not comment on Tracinda's bid.
In a letter to DaimlerChrysler Chairman Dieter Zetsche, Tracinda said it has been following the developments at Chrysler closely and has been studying available materials about the automaker. "Having been a major shareholder for over a decade we are very familiar with both Chrysler and the automotive industry, and have come to believe, all factors considered, that a private ownership approach is in the best interests of all Chrysler constituencies," said the letter, signed by York, a former Chrysler executive.
The letter said it would be easier for a privately owned company to take a long-term approach "to build Chrysler into a robust and lasting, stand-alone entity."